Very wild ride ahead for commodity markets

Economic turmoil, recession, energy price collapse, concerns over inflation, acreage shifts, weather problems — these are just a few of the issues we will be dealing with over the next few months as prices adjust to the changing economic climate.

As a result primarily of the worldwide economic collapse, it is doubtful that there has ever been more confusion among farmers and non-farmers alike as to where prices and the economy are headed.

These are difficult times which make decisions even more difficult.

Nevertheless, business goes on and everyone needs to manage his business based on the “odds” that are in his favor.

Here are some items I think you should consider as we move ahead into summer:

  1. Historically, corn prices above $4 per bushel and soybeans hovering around $10 per bushel are very high.
  2. Based on historical relationships, cotton prices under 50 cents are very low.
  3. Old-crop soybeans supplies are extremely tight but that may or may not be supportive to the new crop. What it does mean is that these old-crop/new-crop soybean spreads this year will be the most volatile in recent history and will likely be even more volatile than a net position?
  4. Commodity prices along with the rest of the world still remain in a deflationary trend. Inflation is a concern — but only a concern at this stage. The world is deflating.
  5. Deflation applies to the energy market as well. The world had a surplus of $149 per barrel crude oil and a shortage of $35 crude oil. This market will likely find a home somewhere between $40 and $60 per barrel over the next year.
  6. In the March planting intentions report, the USDA indicated that producers would plant 7.8 million acres less of the major crops (corn, soybeans, wheat and cotton) in 2009 than were planted in 2008. That will not likely happen! Even though expenses have risen, the majority of the land will still get planted.

In my over 30 years in this business, the fundamentals have changed but people did not. The majority of your neighbors still base this year's decisions on what they did wrong or right last year. Producers sold grain too early last year — so they won't do it this year.

Be very careful. As I have stated in this column before, odds are high that a top will be in the grain market before summer gets into full swing — at the very latest July 4th.

Spring and early summer rallies have historically been rallies to sell. Cotton is another story — don't sell it when prices are below loan rate.

TAGS: Outlook
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